Introduction
In the first quarter of 2024, Ford agreed to sell its South Korean sales company and moved the subsidiary's assets and liabilities into a separate held-for-sale category on its balance sheet. By December the sale had not closed and was no longer probable, so Ford moved them back. Later in the year it agreed to sell its Danish sales company, classified that business as held for sale in the fourth quarter, and completed the sale on January 2, 2025. Neither episode moved Ford's earnings: neither business needed a write-down, and the Danish sale brought in about what the business was carried at.
Accounting for a disposal starts well before the sale. Once a company commits to selling an asset and the sale becomes probable, the asset is reclassified, measured differently and presented apart from the rest of the business. When the sale finally happens, the gain or loss is simply the difference between what the company receives and what the asset was carried at. How a sale flows through the three statements is traced in capex and asset sales on the three statements; what comes first is how the gain is measured and what held-for-sale classification changes.
Measuring the Gain or Loss
The gain or loss on a sale of property, plant and equipment is the consideration received, less costs to sell, minus the asset's carrying amount: its original cost less accumulated depreciation and any impairments. A sale for more than the carrying amount produces a gain; a sale for less produces a loss. Sales of non-financial assets to parties other than customers follow Accounting Standards Codification (ASC) 610-20, which applies the control principles of the revenue standard to decide when the sale occurs and how to measure non-cash or contingent consideration.
Because the tax basis of an asset usually differs from its book carrying amount, the taxable gain rarely matches the book gain. Suppose a company sells a machine that cost $1,000 for $380, paying $20 of costs to sell. It has depreciated the machine to a book carrying amount of $300, but accelerated tax depreciation has cut its tax basis to $100:
| Line item | Book | Tax |
|---|---|---|
| Sale price | 380 | 380 |
| Costs to sell | (20) | (20) |
| Net proceeds | 360 | 360 |
| Carrying amount or tax basis | (300) | (100) |
| Gain on sale | 60 | 260 |
| Tax at 25% | 15 | 65 |
The book tax expense of 15 is the cash tax of 65 less the release of the 50 deferred tax liability built up by accelerated tax depreciation (25% of the 200 gap between carrying amount and tax basis).
The company reports a pre-tax gain of $60 and tax expense of $15 on it, but pays $65 of tax. The extra $50 is the deferred tax liability created by accelerated depreciation in earlier years, reversing on the sale, a mechanism explained in deferred tax liabilities. For anyone valuing an asset sale, the after-tax proceeds are $295, the $360 of net proceeds less the $65 of cash tax, not the $345 that the book tax charge would suggest.
Where Gains and Losses Appear
Gains and losses on the sale of property, plant and equipment are generally reported within operating income, often in other operating income or expense, and are removed from operating cash flow as non-cash adjustments. Bankers exclude them from earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted earnings, since they come from selling assets rather than from operating them, as covered in one-time items: restructuring, impairments and gains. Repeated gains at a company that regularly sells assets, such as stores or rental equipment, deserve a closer look: they may be part of the business model, and they also suggest the assets were depreciated faster than they lost value.
The Held-for-Sale Classification
Under ASC 360-10-45-9, a long-lived asset or disposal group is classified as held for sale in the period when all six criteria in Deloitte's guide to the held-for-sale criteria are met:
- Management with the authority to approve the action commits to a plan to sell.
- The asset is available for immediate sale in its present condition, subject only to usual and customary terms.
- An active program to locate a buyer, and the other actions needed to complete the plan, have been initiated.
- The sale is probable, and the transfer is expected to qualify as a completed sale within one year, with limited exceptions.
- The asset is being actively marketed at a price that is reasonable in relation to its current fair value.
- The actions required to complete the plan indicate that significant changes to it, or its withdrawal, are unlikely.
- Disposal group
A group of assets, together with any directly associated liabilities, to be disposed of in a single transaction, such as a subsidiary being sold. A disposal group classified as held for sale is measured as a whole, and its assets and liabilities are presented separately from the company's other assets and liabilities.
Once classified, the asset or group is measured at the lower of its carrying amount and its fair value less costs to sell. Any shortfall is recognized as a loss at once; later increases in fair value less costs to sell are recognized as gains, but only up to the cumulative write-down to fair value less costs to sell. Depreciation and amortization stop, because the asset's value will now be recovered through the sale rather than through use. The assets and liabilities of a held-for-sale disposal group are shown separately on the balance sheet, never netted against each other.
Ford's filings show each step. When it agreed in 2022 to sell its vehicle assembly and powertrain plants in Sanand, India, it recognized $32 million of impairment charges in cost of sales to write the assets down to fair value less costs to sell, based on the negotiated price. The Danish sales company, by contrast, needed no write-down: at the end of 2024, Ford reported its $52 million of held-for-sale assets, including $47 million of cash, and $33 million of held-for-sale liabilities within other assets and other liabilities, as its 2024 annual report sets out.
When a Planned Sale Falls Through
If the criteria stop being met, as with Ford's Korean subsidiary, the asset returns to held and used. It is then measured at the lower of two amounts: its carrying amount before classification, adjusted for the depreciation that would have been recognized had it never been held for sale, and its fair value at the date of the decision not to sell, as Deloitte's guide to changes to a plan of sale sets out. Under ASC 360-10-45-7, any resulting adjustment is recognized in income from continuing operations in the period of that decision.
Held for Sale Versus Discontinued Operations
Held-for-sale classification is about measurement and balance sheet presentation; it does not by itself move results out of continuing operations. A disposal of a component of the business is reported as a discontinued operation only if it represents a strategic shift with a major effect on the company's operations and results, such as exiting a major line of business or geographic area. Most held-for-sale assets, such as individual plants, stores and small subsidiaries like Ford's national sales companies, stay in continuing operations.
When a disposal does qualify, discontinued operations is an extra layer of presentation, not a replacement for the held-for-sale rules. A business awaiting sale is still measured at the lower of carrying amount and fair value less costs to sell, and its depreciation still stops; in addition, its results for every period presented move to a single line, net of tax, below continuing operations, as set out in discontinued operations.
Most asset sales produce small gains or losses. The large ones matter for two reasons. They change the business that the forecasts describe, and their accounting can separate the earnings effect from the cash effect: a book gain, a different cash tax, and proceeds that appear in investing rather than operating cash flow. Reading all three together is the only way to know what a disposal is really worth.
